Example 2-1. The demand: 50,000 yd3
of mixed-asphalt-paving material during four months (17 weeks of 5
days/week)
Cost Factor
|
Site A
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Site B
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Average hauling distance
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4 miles
|
3 miles
|
Monthly rental of the site
|
$2,000
|
$7,000
|
Cost to set up and remove equipment
|
$15,000
|
$50,000
|
Hauling expense
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$2.75/yd3-mile
|
$2.75/yd3-mile
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Flagperson
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Not required
|
$150/day
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Questions:
- Which site has the lowest total cost?
- For the site chosen, when will the contractor start having a
breakeven (e.g. after delivering a certain amount of
material)?
- What would be the breakeven amount for the unit price equals to
$15, $11.5, and $10?
Solution
You are encouraged to replicate the approach presented here to
solve the question. As we discussed in class, write down every
detail will help you think and prevent unintentional mistake.
Part 1. Total cost = Fixed cost + Variable cost
For site A,
Variable cost (hauling cost) = unit produced * unit cost =
____________________,. yd3 * ( _____________________
miles * $ _____________________ / yd3-mile) = $
_____________________ . Do replace the comma symble of thousands
with a space, e.g. "10 000" instead of "10,000".
Fixed cost = rent + setup + flagperson = $ _____________________
/month * _____________________ months + $ _____________________ + $
___________________ = $ _____________________
So site A’s total cost = $ _____________________
In the same token, for site B,
Variable cost = _____________________ yd3 * (
_____________________ * $ _____________________
/yd3-mile ) = $ _____________________
Fixed cost = rent + setup + flagperson = $ _____________________
/month * _____________________. months + $ _____________________ +
$ _____________________ /day * _____________________ days/week *
_____________________ weeks = $ _____________________ + $
_____________________+ $ ______________________ = $
_____________________
So site B’s total cost = $ _____________________ <= The
contractor will chose site B due to its lower cost.
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